Explaining the Global Economy

Globalization is a catchall term for many processes that are at the heart of the global economy: the spread of instant global communications; the rapid growth of international trade, global capital markets (markets in which national currencies are traded), and foreign investment; and the emergence of a new breed of global corporation. The global economy is the product of all these things, and more than the sum of them. It is a revolution that enables any entrepreneur to raise money anywhere in the world and, with that money, to use technology, communications, management, and labor located anywhere the entrepreneur finds them, to produce goods or services that can be sold anywhere there are customers.

The global economy has been building for 25 years, since the early 1970s. But it burst into public view only in the 1990s, when the end of the Cold War (the post-1945 struggle between the USSR and its allies and the United States and its allies) fundamentally challenged the claims of Communism, diluted the draw of socialism, and enabled supporters of open markets to proclaim the superiority of capitalism. Many nations that formerly followed the theories of German social philosopher Karl Marx abruptly abandoned that philosophy, bringing virtually the entire globe into the orbit of the market.

The global economy is different than the preceding international economy, which took much of its present form in the 17th and 18th centuries with the establishment of nation-states. For hundreds of years nations promoted foreign trade to increase their wealth and power, but rarely hesitated to limit such trade when it was perceived as harmful. The new global economic order is unique in its sheer scope, size, and speed—its ability to leap borders, to treat the world as one market and the nation-state as though it does not exist.